9 C
New York
Monday, October 18, 2021

Record stocks buying but correction in coming months likely: BAML

Record stocks buying but correction in coming months likely: BAMLRecord stocks buying but correction in coming months likely: BAML

By Marc Jones

LONDON (Reuters) – Funds hoovered up a record $33.2 billion of stocks over the last week, analysts at Bank of America Merrill Lynch (NYSE:) said on Friday, but they warned a pullback in sky-high markets in the coming couple of months was now “very likely”.

The rush included a record $2.1 billion into tech stocks, the second biggest week for emerging market shares at $8.1 billion, $7 billion into U.S. markets as well as $4.6 billion and $3.4 billion respectively into European and Japanese stocks.

A total of $21 billion of that money was poured into exchange traded funds. The boom also saw the value of assets held in the world’s largest ETF – State Street’s SPDR S&P 500 ETF (NYSE:) – equal the annual GDP of Denmark at $300 billion.

“BofAML Global Wealth & Investment Management private client equity exposure (is) rising at fastest pace in 10 years and cash allocation is at record low (10 percent),” BAML analysts said in a weekly note on capital flows.

They also highlighted that 98 percent of global equity markets are now trading above 50 and 200-day moving averages, though the pace of the melt-up meant a correction was now increasingly likely.

BAML’s ‘Bull & Bear’ gauge, which takes the temperature of markets, is now flashing overheating warning signals at 7.9, just under the 8 level that BAML recommends selling.

It is the indicator’s highest since March 2013. It has given 11 sell signals since 2002 with a 100 percent hit ratio, BAML said. Average equity peak-to-trough drops in the following 3 months after the signal have been 12 percent they added.

Further inflows into high yield and emerging market debt as well as equity funds would cement the sell signal. A “tactical S&P500 pullback to 2686 points in Feb/Mar (is) now very likely,” BAML’s analysts said.

They also warned a reversal of the dollar’s recent weakness could also spark a sharp correction. A U.S.-Europe FX spat was a trigger of the 1987 stock market crash they said. “Higher dollar “pain trade” = risk-off coming.”

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Source: Investing.com

Related Articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Stay Connected

10,820FansLike
12,893FollowersFollow
756FollowersFollow
- Advertisement -

Latest Articles

Popular Articles